30 April 2010
Japanese ratings agency Rating and Investment Information (R&I) has affirmed South Africa’s foreign currency issuer rating and domestic currency issuer rating at A- and A respectively, while upgrading the ratings outlook for both from negative to stable.
Although South Africa’s real GDP growth rate in 2009 was negative due to the global economic crisis, R&I believes the country’s economic growth trend is unaltered, with capital inflows to remain steady even as the global financial environment undergoes adjustments.
“Macroeconomic management continuity has been maintained even through changes of political leadership, and if the economic scenario based on the recovery trend does not go greatly awry, R&I believes the government can sufficiently achieve its projected fiscal deficit reduction plan,” the agency said in a statement this week.
“In consideration of such factors, R&I has affirmed both the foreign currency issuer rating and the domestic currency issuer rating, and has returned the rating outlook to stable from negative, where it had been since October 2008.”
South Africa’s foreign currency short term debts rating has been affirmed at a-1.
Economic growth, government debt
In contrast to the South African government’s forecast of 2.3% GDP growth in 2010, R&I says private sector forecasters expect it to be in the range of 2.5% to 3.5%.
“While several factors including completion of investment related to the World Cup are anticipated to slow the growth of investment in public works, the economy is expected to return to a growth track from 2011 onward,” the agency said.
While reduced revenues from tax collection have lead to a budget deficit equivalent of 7.3% of GDP for the current financial year, a government outlook released in its 2010 budget shows that the size of South Africa’s deficit reduction over the next three years will be comparatively gradual at 2.2% of GDP.
Given such a fiscal projection, South African government debt will climb as well, with outstanding public debt rising to a peak of about 45% of GDP by the 2015 financial year.
“One strong point is the fact the debt burden is still light and the government can adopt measures with comparatively broad leeway from a fiscal management perspective,” the agency said.
“R&I continues to see whether the government can steadily implement the necessary expenditures, while cutting the budget deficit as envisaged, controlling debt service burdens that are expected to increase.”
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